Financial instruments can be categorized by form depending, for example, on whether they are cash instruments or derivative instruments. Cash instruments are financial instruments whose value is determined directly by markets. Derivative instruments are financial instruments, which derive their value from some other financial instrument or variable. Financial instruments can also be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives.
Sales and trading of financial instruments are often the most profitable area of investment banking, responsible for the majority of revenue for many financial institutions such as banks or brokers.
In the process of market making, ‘traders’ (trading desk) will buy and sell financial products with the goal of making an incremental amount of money on each trade.
A sales force, e.g., a Bank's or broker's sales force, may call on ‘clients’ such as institutional and high-net-worth investors or corporation to suggest possible trades and take orders. The term ‘Structuring’ may relate to the creation of complex financial products, which embed derivatives, and as such typically offer much greater margins and returns than underlying cash securities. Bank/broker Sales and structuring desks (commonly referred to as ‘Sales’) may then communicate their clients' orders to the appropriate ‘trading desks’ who can price and execute trades, or structure new products that fit a specific need.
There are various apparatus and processes allowing sales to communicate the bank tentative or committed proposal for a possible transaction (trade) that is composed of one or more financial instruments, the trade of which is to be transacted between the bank and the client or between the client and a 3rd party such as, for example, an exchange.
A trade idea may be used to communicate a proposal for a transaction of a trade to a client. The trade idea is typically a quantitative marketing document in the form of an electronic file or document, which can be displayed on a computer screen, processed and/or printed. Various industry-standard file types are used including Microsoft Excel, Microsoft Word, Microsoft PowerPoint, HyperText Markup Language (HTML), Portable Document Format (PDF), Rich Text Format (RTF), and various Extensible Markup Language (XML) coding. The content-type typically involves text (in various possible languages), diagrams (vectors) and images (bitmaps).
A term sheet includes a more specific description of a transaction, which may be generated both before and after a trade transaction. The term sheet includes details such as payment dates, condition for payments, and the like.
Conventional manual mechanisms developed by banks/brokers for manually generating trade ideas and/or term sheets are specifically tailored for that bank's needs, typically made ad-hock for each structure and hard to customize. Such conventional mechanisms generate rigidly defined trade ideas and/or term sheets, which are typically partial in their functionality and coverage.